Monthly Archives: December 2007

First Solar, Inc. – Burning Out?

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I’m a believer in alternative energy sources such as wind, geothermal, and solar, but everyone jumping on the “alt energy” bandwagon has pushed some stocks to the moon. One these stocks, First Solar (FSLR), is burning a bit too bright for me and eventually it will burn out. Sure its a momentum play darling right now and its chart is a classic, but fundamentally it will burn out. When? I don’t know but I wouldn’t go near this stock with a 10 foot pole right now.

Technically

FSLR is a company that “designs and manufactures solar modules using a thin film semiconductor technology” and it’s plain to see from the weekly chart that FSLR is on a trend upward right now. If I were playing this stock, I’d be looking for pullbacks on the daily chart to get long, like now. However, with any breakout or momentum play, you have to get in early to make money and its really hard to tell if we’re in the beginning of a long trend or at the end of it right now.

Fundamentally

This is where I have the problem with FSLR. FSLR recently reported earnings and the 300+ PE ratio I wrote about before has now become 171. It’s ROA and ROE is 14.5% and 18.5% respectively, revenue for the most recent quarter is $150.9 million, FWD PE is estimate at 127, and its PEG ratio is 4.0. The low ROA and ROE and a PEG ratio of 4.0 is what makes me want to stay away from it.

Wow, everyone has high hopes for FSLR but I don’t. That’s not say that FSLR will have a bright future, but I seriously doubt it will be at price levels above $200!

Forex Thoughts

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It looks like a BIG correction is happening in the forex markets right now and yours truly is taking it on the chin. The USD is gaining strength and the AUD, GBP, EUR, JPY, and CHF crosses are all down. The reason why the USD is rallying is because of the interest rate reductions by the Bank of England and Canada; these reductions reduce the rate differentials between the currencies and strengthen the greenback. I suspect that this could accelerate if Australia decides to do the same at their next meeting.

I should’ve expected a rally in the USD because it dropped too far and too fast once the support broke but I expect the rally to be short lived. There’s too many problems with the US economy and the trend for lower interest rates seems to be down, of course things will get better one day.

My thoughts on forex are that we’ll see parity in the AUDUSD pair next year and I’m guessing the EURUSD will take out $1.50 before being exhausted. But these are the forex markets and you never know!

The good news about all this volatility is that I’m getting destroyed right now in my carry trade experiment. I’m learning that carry trading is an entirely different animal, with entirely different strategies and money management. The reason that this makes me happy is because I won’t be doing any trading of this type when I open my next Forex account next year with about $10k of cash. However, that won’t deter me from learning more about it! :)

401k Revisions

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For the first time in a very long time, I made changes to my managed 401k allocations. I did for several reasons, the smell of a dying real estate bubble was getting too bad, the markets have been trying to take out their old highs but the subprime mess and the rising spector of inflation (gee there’s been inflation?) has been taking out their momentum

My guess is that we’re in for a big correction.

Continue reading →

Ron Paul Tea Party 2007

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Tomorrow, on the anniversary of the Boston Tea Party (12/16/1773),  I will be making my third donation to the Ron Paul campaign. Ron’s the only candidate that I’ve given money to in all my voting years and he’s the only candidate running where I don’t have to choose between the “lesser of two (or more) evils.”

The goal is to raise $10 million tomorrow and I hope he blows the doors off it!

Update: Check out the money bomb graph comparing the donations from Nov 5th and today.

Forex & Futures Forecast

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Next week’s Forex and Futures Forecast is as follows:

  • AUDUSD – DOWN
  • GBPUSD – DOWN
  • EURUSD – UP
  • CHFUSD – UP
  • USDJPY – UP
  • Gold – UP
  • Oil – UP

It looks like old trends are reestablishing themselves except for the Brits and the Aussies!

I’m going to be publishing longer term trend confirmation results for Forex and Gold after I produce the first set of RapidMiner tutorials.

Spain’s Real Estate: Decoupled from the USA?

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It looks like the Spanish Real Estate market is the next victim of the “decoupled” USA economy.

Spain is suffering collateral damage from the collapse of the U.S. market for mortgages to the riskiest borrowers and the swoon in U.S. real estate. Spanish banks have exceeded their European peers in tightening lending standards, prompting a plea from the Prime Minister Jos̩ Luis Rodriguez Zapatero Рfacing national elections early next year Рnot to strangle growth.

This, of course will have consequences for the EU who may be forced to cut interest rates in the face of higher inflation to stablize markets dependent on credit.

“The end of Spain’s ‘fat’ years will hit the whole region,” Ralph Solveen, an economist at Commerzbank in Frankfurt, said. Spanish economic growth is outpacing the euro region for the 13th year, in part because of the spending boom spurred by soaring property prices. Consumer debt surged to 130 percent of incomes in June, from about 70 percent in 2000. With home values rising by 176 percent during the same period, construction has accounted for one in every five new jobs. The current-account deficit demands €2 billion, or $2.9 billion, a week to finance. [via IHT]

A foreign country like Spain, who should’ve been “decoupled” from our economy, sure sounds a lot like a “mini me” version of the United States. You can’t fart nowadays without having some global impact, and to think that the world’s largest economy could simply decouple itself from the rest of the world is idiotic. If that were true then why did we have this “coordinated action” (aka intervention) yesterday by several global banks?

Is it me or do I see cracks in the foundation of the house of financial cards?

Navigating the Fed Water

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I took a small EURUSD position on Monday @ 1.4722 and sat tight through the Fed meeting. I knew there would be some volatility yesterday and the markets sold off like crazy after the Fed’s 2:35PM announcement. If you’re a fundamental Forex trader like me, you just wait patiently for the trend to reestablish itself. If you’re really smart, and not in a long meeting, you’d buy some more EURUSD on the dip.

EURUSD reversed its course around $1.4670 which is about a 50 pip swing, which isn’t too volatile at all!

Global Crosscurrents: The Financial Riptide

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Whoever came up with the idea that the United State’s economy can “decouple” from the global economy had their brains decoupled from reality. For all the “we are one world” jargon they spew, they seem to forget that the biggest and most powerful linking agent among us all is global trade and the economy.

Yesterday, another side of the subprime mess reared its ugly head, UBS wrote down more than $10 Billion francs in bad loans. This was not the first time as it comes on the heels of another write down earlier this year.

The write-down follows a 4.2 billion Swiss franc ($3.7 billion) hit that UBS suffered at the end of October which was also related to U.S. subprime mortgages — loans made to high-risk home buyers who face rising interest rates and are now defaulting on payments. [via Reuters]

Who would’ve thought that borrowers with bad credit or no credit would possibly default on their payments? It looks like the “ownership society” is turning into the nightmare society for banks, but help is on the way from Reserve banks and investors.

What caught my eye from this article was the injection of capital from entities in Singapore and the Middle East. The intent was to stabilize UBS and is eerily reminiscent of Abu Dhabi Investment Authority injection of capital into Citigroup last month. This, coupled with the fact that the Federal Reserve and other banks are ready to lower rates at the first whiff of 10% market decline, is confirmation of a lurking and dangerous global financial riptide.

Large banks will undoubtedly continue to be bailed out by investment authorities and Reserve banks as the subprime mess unwinds. The Bank of England lowered rates last week and Canada followed suit too, who’s next? We know that our Federal Reserve has lowered rates recently and is poised to do so again today. Lower rates do indeed stall for time as everyone hopes it will be enough to unwind these crazy SIV’s and other subprime loans.

But these bailouts and lower rates come at a price, more inflation. You simply can’t solve one bubble’s problem (Dot com) with another bubble (Real Estate), and keep it going into perpetuity! Sooner or later the bill must be paid and then the carefully orchestrated house of cards will come crashing to the ground. Real Estate was the first causality of this financial riptide, the world could be next.

Forex Markets Wait For The Fed

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Ben Bernanke and Co. are meeting Tuesday to discuss the economy and where interest rates should be. Everyone is now anticipating a 25 bps cut after the strong employment report on Friday. As a result, Forex markets have been vey quiet as every trader and bank waits to see which way rates will go. I believe that the subprime mess and Real Estate recession will force the Fed to lower rates to 3.5% before its over. Lower rates equal more inflation and a further erosion of the US Dollar.

Its very dangerous to navigate the currency markets right now and I’m debating doing nothing or taking a small position in EURUSD. EURUSD seems to move violently on Fed days but it does come with its rewards if you read the economy right. The beating you get goes without saying if you read the economy wrong.

A quick scan of the currency markets reveals that the US Dollar is strengthening against the Yen, the Yen remains weak today (bear trend still in place), and all other major pairs seem to be in a holding pattern.

Is Oracle Corporation A Buy?

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At the end of every year I like to scan the market for good stocks at cheap prices. Sometimes I like to revist past holdings and see if they’re worth buying again, like Oracle Corporation (ORCL). I used to hold this bad boy as part of my Four Horseman portfolio in the late 1990′s and rode it down most of the way during the Dot Com implosion; ORCL closed at $21.14 on Friday.

Technical Analysis

ORCL has been in a nice uptrend for several months now and always manages to bounce off its trend line. The price action reveals that its going through a “coiling” action where a breakout on either side of the trendline could happen. Based on the trend, one could assume that it will break out on the upside but this is the stock market! Anything can happen! Technically, the chart looks healthy and I would enter a small position here if I were purely trading that way.

Fundamental Analysis

S&P rates ORCL a 5 star stock and fundamentally its a toss up for me. It’s PE ratio is currently 24.9, FWD PE ratio is 16.9, its one year earnings growth estimate is 26.84% and 5 year earnings growth estimate is 15.72%. Although I’d like to see a 5 year earnings forecast at least 20%, I’m glad its FWD PE ratio is less than its current PE ratio (a lower FWD PE ratio means forecast higher earnings growth). The two things that give me a bit of pause is the rich PE ratio of 24.9 and the below 20% 5 year earnings forecast.

However, if you take into account ORCL’s total debt to equity ratio of 0.35, its gross and net margins of 76.9% and 23.5% respectively, and its growth into the business intelligence market, I think ORCL might be a cautious buy.

Summary

I’m tempted to buy a few shares of ORCL but I’m taking a wait to see approach right now. I’m keenly interested in which way it breaks out on the trendline first.

Disclosure: No positions in ORCL.